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What’s the Difference Between Deflation and Hyperinflation? Why do you ask?
Hyperinflation is caused by an exponential increase in the supply of money or credit, a drastic devaluation in the currency or both.
To have that, we would need full faith and confidence in central bank credit, currency, and government, which is actually dwindling.
Do you know many who are borrowing more right now, despite cash for clunkers and homeownership tax credits?
Hyperinflation is often connected to wars and their consequences, economic depressions, or political or social upheavals.
We certainly have wars, which have driven up the cost of living. We have the social upheaval of illegal immigrants and foreign imports competing for our jobs and dollars, which reduced our paychecks and savings, which is deflationary.
We have the political upheaval of government continuing to borrow and spend more than it takes in.
Yet so far, monetary growth rates did not increase 600% or more a year. People are still spending dollars rather than gold or silver.
We are unlikely to see hyperinflation soon for the simple reason that the money velocity multiplier, how fast dollars change hands, is currently below 1. Maybe later, after confidence is restored.
It takes way more than a dollar of monetary or fiscal stimulus to see a dollar of additional economic growth measured by GDP
In fact, the Gross Domestic Product contracted year over year.
This means the Fed and Treasury may be pushing on a string, while people save what they can for a rainy day.
Banks are flush with dollars, bonds, notes and bills, but they are not lending. They still have toxic derivatives and mortgages to write off.
What about the +3.5% Third Quarter GDP?
Isn’t that great news for economic recovery?
Limited polka dot prosperity like the false starts in other declines.
